The Treasury has applied for EU approval to split up Royal Bank of Scotland
(RBS), in a move that would smooth over the process of carving up the
state-owned bank.

George Osborne, the Chancellor sought clearance in July for the split of the bank, which is 83pc owned by the taxpayer, allowing the Government to avoid newly-introduced rules on state support for banks.

The early notification to Brussels, which came just before stricter new rules on executive pay and share ownership came into force, would make it easier to split RBS into a so-called “good bank” and “bad bank” should the Treasury decide to do so.

Mr Osborne has ordered a review into whether splitting the bank would boost lending, and the application to Brussels is understood not to prejudge this process.

The new EU laws could have seen private shareholders’ holdings wiped out in the event of a split.

A Treasury spokesman said the Government would not provide "a running commentary" of discussions with the EU.